Charities have long played an important role in feeding, clothing and providing healthcare and education in a country where millions live on less than $2 a day

CAIRO, Nov 5 (Reuters) - Egypt's president has signalled he might order a review of a law restricting the work of non-governmental organisations, which has raised an outcry from human rights groups, saying it needed to be "balanced".

Rights groups say the May 2017 law effectively bans their work and makes it harder for charities to operate. Officials have said it is necessary, arguing that foreign-funded NGOs threaten national security.

Responding to a request from a participant in a youth forum in the Red Sea city of Sharm al-Sheikh on Sunday to revisit the NGO law, President Abdel Fattah al-Sisi said: "I agree with you. I believe in the work done by civil society organisations."

"The law contained phobia and a fear of these organisations for Egypt," he added.

"I want to reassure those who are listening to me inside Egypt and outside of Egypt, that in Egypt, we are keen that the law becomes balanced and achieves what is required of it to regulate the work of these groups in a good way. This is not just political talk," Sisi said.

The measure restricts NGO activity to development and social work and brought in jail terms of up to five years for violation.

Sisi said the government was dissatisfied with the law when it was issued last year and he had opted not to actively enforce it, "in the hope that we can move to redraft it."

While critics have said that the law mainly targets rights groups, even apolitical charities have complained it restricts them at a time when subsidy cuts and tax increases have made it harder for Egyptians to make ends meet.

Charities have long played an important role in feeding, clothing and providing healthcare and education in a country where millions live on less than $2 a day.

Under the law, donations exceeding 10,000 Egyptian pounds ($560) must be pre-approved. If no approval is granted within 60 days the request is automatically denied. Failure to inform authorities could result in jail terms of up to five years and fines of up to 1 million Egyptian pounds ($56,000).

Gamal Eid, founder and director of the Arab Network for Human Rights Information, expressed scepticism over Sisi's seriousness in amending the law.

"If the calls for an independent civil society from abroad ease, he will not amend the law," Eid said, adding that the government did not respect civil society in Egypt. ($1 = 17.8600 Egyptian pounds) (Reporting by Hesham Hajali and Ali Abdelaty; Writing by Yousef Saba; Editing by Sami Aboudi, Richard Balmforth)